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Business Case Manual Volume 2: GuidanceChapter 1 (this chapter) introduces keyprinciples, concepts and governanceprocesses to guide the project managerthroughout the business case lifecycle.This chapter addresses the fact thateach business case will be unique andwill rely on the project manager (andsupervisor) understanding the intentionsunderlying the design of the businesscase when using their professionaljudgment to complete the business case.Chapter 5 describes the Economic Casechapter of the business case. This looks atthe impacts of the project on social welfare,including travel impacts and wider impacts.Chapter 6 describes the FinancialCase chapter of the business caseand estimates the overall financialimpact of the investment.Chapter 2 describes the processused to set out the Case for Changefor an investment based on existingconditions, future conditions, and alogical linkage between a problem and/or opportunity and a proposed generaltransport investment that can respondto the problem and/or opportunityand realize benefits to the region. .Chapter 7 describes the Delivery andOperations Case chapter of the businesscase. This chapter is concerned withhow implementable each option is aswell as how it will be operated over itslifecycle. Key questions include projectmanagement capacity, risks, stakeholders,construction phasing, and approvals.Chapter 3 describes the developmentof options to be tested in a businesscase and a high-level descriptionof the expected impacts.Chapter 8 provides high-levelguidance on how to develop thechapters of the business case that aretypically finished last: Introduction,Summary, and Executive Summary.Chapter 4 describes the StrategicCase chapter of the business case,what content is required and howit can be created. Long rangeforecasting is also a component ofthe Strategic Case where relevant.5

Chapter 1 : Guidance OverviewThe Purpose of aBusiness CaseA business case is a comprehensivecollection of evidence and analysis thatsets out the rationale for why a problemor opportunity should be addressedand what the core requirements arefor addressing it. Business casesprovide evidence to decision-makers,stakeholders, and the public as a crucialpart of transparent and evidence-baseddecision-making processes. Broadlyspeaking, business cases should definea problem or opportunity and make thecase (including strategic fit, benefits,and costs) for Metrolinx to deliver one ormore potential investments to address it.Metrolinx Business Case vs.Benefits Case AnalysisBusiness Case StructureA business case should include eightchapters (as described in Figure 1.1) –including framing material (introduction,problem definition, and optiondevelopment), a four-case evaluationthat includes two cases that speak tothe rationale for pursuing an investment(Strategic Case and Economic Case)and two that speak to the requirementsfor successful implementation ofthe investment (Financial Case andDeliverability and Operations Case), anda conclusion section that summarizesthe investment's overall performance. Abusiness case with each of these chaptersfollows best practice in investmentevaluation. The Guidance provides astructured approach to defining theproblem, generating options, andcompleting the four chapter analysis.A business case is a collectionof evidence assembled intofour chapters or cases –Strategic, Financial, Economic,Deliverability/Operations –that explains the rationale forpursuing an investment. It isan evolution of the previousMetrolinx Benefits Case Analysisreports used between 2008 and2015 for large transit projects,capturing additional economicimpacts as well as strategic anddelivery/operations evidence.6

Business Case Manual Volume 2: GuidanceFigure 1.1:The business casestructure mappedagainst thechapters inBusiness CaseManual Volume 2:Guidance (V2)Chapter 1 : Guidance OverviewIntroduction (V2 Chapter 1)Provides an overview of the business caseThe Case for Change (V2 Chapter 2)Sets out a problem and/or opportunity , thebenefits of addressing it (at a high-level), and typesof solutions that can realize these benefitsInvestment Options (V2 Chapter 3)Sets out a defensible set of options to be testedagainst the benefits and outcomes in Chapter 3Strategic Case (V2 Chapter 4)Economic Case (V2 Chapter 5)How does the investment achievestrategic goals and objectives?What is the investment's overallvalue to society? Determines the value of addressing a problem oropportunity based on regionaldevelopment goals, plans, and policies Assesses the economic costs and benefits of theproposal to individuals and society as a whole,and spans the entire investment's lifecycle Options are evaluated against objectives thattell a clear narrative of how the investment canaddress the problem or opportunity along withpotential risks to investment performance Uses standard economic analysis todetail the investment's benefits, costs,and risks in economic terms Establishes ‘why’ an investment shouldbe pursued from a strategic lensFinancial Case (V2 Chapter 6)Deliverability and Operations Case(V2 Chapter 7)What are the financial implications ofdelivering the investment? Assesses the overall financial impact of theproposal, its funding arrangements and technicalaccounting issues, and financial value for money Focuses on capital, operating, andrevenue impacts and risks directlyrelated to the investment and indirectlyresulting from the investment Establishes ‘how much the investmentwill cost’ in financial terms Establishes ‘what the benefit tosociety’ is in economic termsWhat risks and requirements must be consideredfor delivering and operating the investment? Provides evidence on the overallviability of one or more options foraddressing the problem/opportunity May consider procurement strategies,deliverability risks, operating plansand risks, or organizational risks Establishes ‘what is required to deliverand operate’ the investmentBusiness Case Summary(V2 Chapter 8)Provides a summary of the core findings from each chapter alongwith recommendations for future investment development.77

Chapter 1 : Guidance OverviewBusiness Cases, Decision Makingand Investment PlanningBusiness cases provide evidence todecision-makers, stakeholders, and thepublic as a crucial part of transparentand evidence-based decisionmaking processes. They are usedthroughout any proposed investment’slifecycle, including planning, delivery,management, and performancemonitoring in two major roles: Appraisal: to assess potentialinvestment options to address aspecific problem and/or opportunityby presenting evidence on the rangeof costs, benefits, risks, and deliveryrequirements in a clear and concisemanner. For example, a business casemay make the case for investment into anew rapid transit corridor and comparedifferent modes or service patterns. Evaluation: to compare the realizedbenefits and costs of an investment anddocument key lessons learned duringinvestment delivery and operations.For example, after a rapid transitservice has operated for five years,Metrolinx may develop a Post In-Servicebusiness case to determine the extentto which the investment’s performanceis aligned with the full business casethat justified it. Evaluation is usedto identify opportunities to improvean investment once it is operationalor augment on-going planning anddevelopment of future investments.Business case analysis is used by Metrolinxas a sound and established methodfor evaluating potential transportationinvestments in a comprehensive manner.This type of analysis (determining whichinvestment has the highest potential fora specific problem and/or opportunity)is different from analysis conductedto prioritize between high value andpotential investments or ‘solutions’identified within individual businesscases. For example, once complete,a set of business cases for differentproblems and/or opportunities maybe compared through a prioritizationprocess to determine which onesshould be considered first for furtherplanning, analysis, and delivery.This process considers a rangeof broader factors, including: Relative performance – what range ofbenefits does each business case offerto the region relative to costs to deliver? Required capacity to deliver – whatare the financial and organizationalrequirements to deliver the investmentsoutlined in each business case? Risk profiles – what are the comparativerisks between the proposedinvestment in each business case? Procurement – how procurementready are the solutions proposedin each business case? Interdependencies – how dependentare the solutions proposed ineach business case to otherundelivered investments?These broader factors are importantcomponents of Provincial and municipalproject-selection processes, but areoutside the scope of this Guidance.8

Business Case Manual Volume 2: GuidanceExternal Advisors to theBusiness Case ProcessIn addition to the peer review processused to develop this Guidance,Metrolinx will establish an externalreview process including: A technical advisory panel to adviseon business case development. A peer review process for businesscases where relevant subject matterexperts that were not involved in thedevelopment of a business case areasked to review and provide commentsand considerations for improvement.Metrolinx will convene the technicaladvisory panel and seek peer reviewon a regular basis for the scale ofbusiness cases under review.9

Chapter 1 : Guidance OverviewBusiness Case Principlesand ConceptsKey PrinciplesThe following underlying principles should be taken intoconsideration in completing business case analysis:Support robust decisionsBusiness cases are intended to add confidence to decisionsand lead to the avoidance of re-opening decisions; toalign and support decision-making as much as possibleand to minimize total effort expended on projects.Objective and evidence-basedBusiness cases should be free of bias and based onverifiable data, evidence and transparent assumptions.Diverse information sourcesBusiness case analysis should include both quantitativeand qualitative data, be integrated with other formsof analysis to support decision making.Adaptable and scalableIndividual business cases should be tailored to the size,expected level of impact, and risk of the investment.Progressively elaboratedAnalysis should be updated at certain stages of an investment’slifecycle as new, more robust, relevant material becomes available.10

Business Case Manual Volume 2: GuidanceUniversal and consistentThe same basic questions should be addressed by every businesscase, allowing the reader to easily locate information and enablingdifferent business cases to be weighed against each other. Consistentstandards periodically updated will be followed to ensure consistency.Comprehensive and understandableEach business case includes all material factors relevant to a realisticallycomplete evaluation and should be communicated using plain language.TransparentBusiness cases should include sufficient detail to explainthe basis of the business case evaluation.Consider risk and business capacityBusiness cases should consider the key risks of an investmentand the business capacity required to deliver it.11

Chapter 1 : Guidance OverviewConceptsThe concepts defined below aim to provide project managers with an overallunderstanding of the structure and organization of the business case.InvestmentThis Guidance uses the term ‘investment’ to define an intentionalchange to the transportation system that is invested in byone or more government agencies. The term ‘option’ is usedto refer to a specific investment under consideration andcould include changes to the transport network’s regulations/policies, traveller experience, operations, or infrastructure.Economic AnalysisThis Guidance defines Economic Analysis as an approach todetermine the value of the impacts of an investment to the welfare ofindividuals and society as a whole, presented in real terms (example:reduced emissions, improved health, increased productivity).Financial AnalysisThis Guidance defines Financial Analysis as the consideration of theongoing expenses and revenues incurred by parties funding, deliveringor operating the option. Future year expenses and revenues shouldincorporate growth projections and be presented in nominal terms.Business as UsualThis Guidance defines ‘Business as Usual’ as the baseline againstwhich options are compared where the investment has not occurredand existing business practices, committed plans and general trendscontinue into the future. Previously completed business cases mayhave used multiple terms to refer to this baseline – however, allfuture business cases should use consistent language using the term‘business as usual’. This baseline defines the ‘future conditions’ that aninvestment scenario should be compared against. This should include: Funded and committed major changes to the transportnetwork (example: a funded rapid transit line); Minor changes to the transportation network (such assignal timing or frequencies on bus routes) based onchanges to transport demand in future years; and Land use, population, and employment assumptions that areinformed by official plans, policies and market trends.12

Business Case Manual Volume 2: GuidanceInvestment Grade AnalysisInvestment grade analysis refers to modelling, design, and optiondevelopment work that is conducted to the highest level of detail. Thiswork supports decisions for which a significant level of investment isrequired and typically applies built for purpose or modified for purposemodels and specific designs for investment options, whereas earlierstages of analysis may use general tools and high-level designs.ProportionalityProportionality of the evaluation process is important, to ensurebest use of scarce resources in the evaluation process and in optiondevelopment. Proportionality can be considered through three lenses: The greater the cost of an investment, the greater level ofdetail and certainty is required for benefits and costs (a 50mstation enhancement investment is not expected to have thesame level of effort expended as a 5bn subway extension). The elements that contribute more to the case for an investmentshould have greater effort expended than elements thatcontribute less (example: time savings are typically thelargest element in the Economic Case and these should bemore robustly scrutinized than auto accident savings). The level of effort required to reduce uncertainty to anacceptable level, identifying and addressing knownrisks, and avoiding spurious accuracy in analysis.Base vs. Real vs. Nominal 13Business cases present monetary figures differently dependingon the case. For example, a capital cost figure may be differentbetween the option definition section, the Economic Case, andthe Financial Case. This is because each case is presenting costsfor different purposes. The option definition section provides thebase estimate for investment expenses independent of ‘how’ themoney is spent (for example: spending capital costs over five yearsto deliver an investment). The Economic Case is concerned with thereal value of costs in terms of a fixed evaluation year. These figuresinclude a social discount rate and the effects of any value escalation(general price inflation is ignored) based on the timeline over whichthe expenditure is incurred. The Financial Case presents costs innominal terms – meaning they are inflation adjusted. The FinancialCase figures include general inflation, cost escalation, and a financialdiscount rate. These three types of costs are illustrated in Figure 1.2.

Chapter 1 : Guidance OverviewFigure 1.2: Base vs. Real. Vs. NominalThe business case uses3 types of costs:Base costs The expected cost to provide an investmentincluding capital and operating costs. Base costs, which are anestimate of the cost of theinvestment if the entire systemwas procured today, are usedto scope the concepts.Economic costs, whichare used to understandthe economic value of theinvestment to society inthe Economic Case.Financial costs, which are usedto understand the financial cashflow impacts of the investmentin the Financial Case.Economic costs(real costs)Financial costs(nominal costs)Investments require capitaland operating costs to be paidthroughout the project lifecycle.Economic costs reflect thereal price of these costs basedon the year they are incurredand a social discount rate.Investments require capitaland operating costs to be paidthroughout the project lifecycle.Financial costs reflect the actualprice in the year they are required.The social discount rate reflectsa general 'time preference' forvalue – value today is seen asmore valuable than value inthe future so over time costsand benefits are discounted.Because the purchasing power ofmoney generally declines over time,cost estimates need to be adjustedthroughout the lifecycle to reflectthe increase in money required toprocure them compared to if theywere produced in the base year.DefinitionsInflation reflects the general increase in pricesfor goods and services over time.Value escalation reflects the increase in prices for goods andservices above the general increase in prices – for example, fleetmay increase in price faster than other goods and services.Nominal values, used in the Financial Case, reflectthe expected cost of a good or service in the year ofexpenditure based on both inflation and escalation.Real values, used in the Economic Case, reflect the value of thegood or service based on escalation without general inflation.14

Business Case Manual Volume 2: GuidanceBusiness Case Guidance PrinciplesThe following principles were usedto develop this guidance: Business case analysis shouldbe supported by a consistentset of standards which areperiodically updated based ona review of best practices. Review of best practices should beongoing in nature however changesto standards should occur no morethan once every two years. Business case analysis will supportthe successful development andimplementation of Metrolinx’s 2041Regional Transportation Plan (RTP)and other plans and as such theyshould be consistent with such plans. Business case standards shouldbe communicated through thedevelopment and maintenance ofa policy with supporting guidance,and business case trainingshould be provided to staff in thesupport of good practice in thecompletion of business cases. This Guidance was developed primarilyfor relatively large investments;however the principles and conceptscan be applied to smaller investments.15

Chapter 1 : Guidance OverviewThe Business CaseDevelopment ProcessThe deve

VIII V 2 Guidance Table of Acronyms BAU Business as Usual BCA Benefit Cost Analysis BCR Benefit Cost Ratio BF Build Finance BRT Bus Rapid Transit C Cost CAC Criteria Air Contaminant CAD Canadian Dollar CM Construction Management CO ² Carbon Dioxide CO ² e Carbon Dioxide Equivalent CPI Consumer Price Index D&O Deliverability / Operations DALYs Disability-Adjusted Life Years